Category: Serbia

Vulic Law, working with Gide, has advised the International Finance Corporation on its EUR 160 million financing for Serbia’s Drenik ND. Wolf Theiss’s Hungarian office reportedly advised the IFC as well.

According to Vulic Law, this is the “largest green financing transaction of the IFC for a Serbian company to date. In this cross-border transaction, the IFC extended a substantial loan to Drenik ND, a major tissue paper producer and distributor in the Western Balkans with production plants in Serbia and Hungary.”

Furthermore, Vulic Law reports that the financing serves “multiple purposes aimed at bolstering Drenik’s operations and sustainability efforts. It supports the development of the largest captive biomass power plant in Serbia. This initiative not only ensures a stable operation and energy supply for Drenik’s manufacturing facility, but also contributes to a substantial reduction in carbon dioxide emissions, aligning with global efforts to combat climate change.”

The Vulic Law team included Managing Partner Milos Vulic.

Editor’s Note: After this article was published, Wolf Theiss confirmed it had advised the IFC on Hungarian aspects of the deal. The firm’s team included Counsel Melinda Pelikan and Associates Laszlo Lovas and Viktoria Horvath.

Cvjeticanin & Partners has advised Daikin Serbia on implementing its employee benefits program including company shares and profit sharing.

Daikin Industries is a Japanese multinational conglomerate headquartered in Osaka. It is the world’s largest air conditioner manufacturer, according to the firm, with Daikin Serbia as its local subsidiary.

According to Cvjeticanin & Partners, “Daikin Serbia has rewarded some of its most loyal employees, who have been with the company for more than ten years, with shares in the company and included them in profit sharing.”

The Cvjeticanin & Partners team was led by Partner Marija Cvjeticanin and included Associate Kristina Lekovic.

As of the close of 2022, Serbia’s banking sector faced challenges amid global economic conditions. The year 2023 brought its distinct set of obstacles, with a noteworthy slowdown in global inflation compared to the last quarter of 2022. However, the undeniable focal point is the war in Ukraine, triggering a faster inflationary spiral due to increased energy and food prices.

Key mergers and acquisitions

In 2020, Komercijalna Banka, the largest state-owned Serbian bank, was acquired by Slovenian NLB Banka, leading to the merger of NLB Banka and Komercijalna Banka into NLB Komercijalna Banka. Vojvodjanska Banka was acquired by Hungarian OTP Bank, followed by OTP Bank’s acquisition of Societe Generale Bank. In 2021, Direktna Banka and Eurobank merged into Eurobank Direktna, and AIK Banka acquired Sberbank Serbia, later rebranded as Nasa AIK Banka. Raiffeisen Bank in Serbia acquired Credit Agricole Bank in August 2021, renaming it RBA Bank in September 2022, with full integration anticipated by the end of Q2 2023.

Despite expectations of a temporary halt in mergers and acquisitions in the domestic banking sector in 2023, AIK Banka signed an SPA to acquire 100% of the ownership of Eurobank Direktna in February. Upon completion of the transaction, the total number of operating banks in Serbia is expected to be 20.

Serbia’s banking sector in numbers

At the end of 2022, the total number of active banks in the Serbian market was 21. Only six months later this number decreased to 20. The consolidation trend continued and financial results on the sector level in 2022 and H1 2023 insinuate the same trend for the next years.

As of December 31, 2022, the sector’s total assets stood at EUR 46.5 billion, witnessing an increase to EUR 47.5 billion six months later in 2023.In the first half of 2023, the top 10 banks collectively held assets totaling EUR 43.9 billion, constituting 92.4% of the sector’s total assets. Simultaneously, the top 5 banks accounted for EUR 29.2 billion in assets, representing 61.5% of the total sector assets.

Notably, nine banks held a minimum 5% share of the total assets in the sector.

A very similar situation can be seen on the deposit side. The top 10 banks participated in the H1 2023 with 92.4% of the total deposits in the sector.

In terms of size measured by the number of employees, over 2000 employees on 30 June 2023, have Intesa (3123), OTP (2725), Raiffeisen (2276), NLB Komercijalna (2408), and Postanska (2665).

On 30 June 2023, the following banks had more than 100 branches: Intesa (178), Raiffeisen (132), NLB Komercijalna (181), and Postanska (242).

However, this number is progressively becoming less and less important even in jurisdictions that are lagging in digital literacy, such as Serbia.

In terms of profitability, the situation is the following. On 31 December 2022, the total pre-tax profit of all banks in Serbia was EUR 607 million out of which the first 10 banks made 93.7%. At the end of 2022, 8 banks had ROAE above 12.5%. At the same time, 9 banks had ROAA above 1.5%.

When it comes to the CIR (cost/income) ratio, 7 banks had it below 60% on 31 December 2022.

Conclusion

The years 2021 and 2022 were significantly marked by M&A activities. The same trend continued in 2023. Some of the processes have come to an end, and several mergers are still ongoing.

The market is still in consolidation mode and figures clearly show a lack of business case for several banks. Regional banking groups OTP and NLB are openly ambitious to further grow, and the same goes for domestic AIK bank. Intesa and Unicredit are still keeping up the pace with the latter group through organic growth. Erste bank officially expressed the same intentions.

Rumour has it that at least 4 banks are currently looking for the new owner in the Serbian market. So, we see similar transaction dynamics in 2024, as in previous few years.

By Milos Velimirovic, Managing Partner, Kinstellar

Quite unexpectedly, 2023 has proven to be a pivotal year for our trilogy on commercial offenses, considering the anticipated surge in the number of commercial cases before the national Commercial Courts attributed to the announced expeditiousness of public prosecutors. In light of such circumstances, we once again urge our readers, if they have not already done so, to check out our Chapter 1 – “A Commercial Offense – A Brief Review of an Unjustifiably Neglected Step Between a Misdemeanor and a Criminal Offense.”

The fate of the multitude of initiated commercial offense proceedings will unfold in the years to come, and this time, following the promise from Chapter 2, we will delve into the proceeding upon ordinary and extraordinary legal remedies, as well as the three special proceedings governed by Commercial Offences Act (Official Gazette of the SFRY, Nos. 4/77, 36/77 (corrected version), 14/85, 10/86 (revised text), 74/87, 57/89 and 3/90, Official Gazette of the FRY, Nos. 27/92, 16/93, 31/93, 41/93, 50/93, 24/94, 28/96 and 64/2001 and Official Gazette of RS, No. 101/2005 (other law), hereinafter: ‘’Law’’) – for the Confiscation of Proceeds, for the Indemnification for Unjustifiable Conviction, and for the Expungement of Conviction and Termination of Security Measures or Legal Consequences of Conviction. 

Before we delve into further details regarding the aforementioned proceedings, it is crucial to establish the distinction between ordinary and extraordinary legal remedies. While both legal tools serve the purpose of contesting judicial decisions, the crucial difference lies in the legal finality of these decisions.

Ordinary legal remedies – Understanding the institution of the appeal and its practical ranges

In the upcoming lines, our team will encompass the most crucial legal aspects related to the appeal in commercial offense proceedings as the sole ordinary legal remedy and a constitutional right in the legal system of the Republic of Serbia. For the sake of simplification, this section outlines the practical aspects of the appeal process, offering a clear insight into its functioning in Serbia.

After a court renders a judgment in the first instance, authorized individuals have eight days to file an appeal. The first consideration for a defendant is that the act of filing delays the execution of the judgment.

Grounds for filing an appeal are outlined in the provisions of the Criminal Procedure Code (“Official Gazette of RS”, no. 72/2011, 101/2011, 121/2012, 32/2013, 45/2013, 55/2014, 35/2019, 27/2021 – Decision CC and 62/2021 – Decision CC), hereinafter: ‘’Procedure Code’’)  and include: 

• Substantive violations of the provisions of Procedure Code.
• Violations of substantive law.
• Incorrect or incomplete findings of fact.
• Contesting the decision on sanctions and other decisions.

It is crucial to note that the appeal must be submitted in writing. The list of authorized persons includes the parties involved, the defense counsel, the injured party, and all individuals with ownership rights over confiscated items.

The public prosecutor can appeal not only against but also in favor of a corporate entity or an individual facing charges. Meanwhile, an injured party can appeal only regarding court expenses. If the Public Prosecutor assumes prosecution from the subsidiary prosecutor, the latter may file an appeal on all grounds contesting a judgment. Additionally, if the Public Prosecutor was absent at the main hearing, the injured party is entitled to file an appeal against a judgment in the capacity of the subsidiary prosecutor, regardless of whether the Public Prosecutor has filed an appeal.

A court of the second instance shall decide on an appeal in a chamber session exclusively. When ruling on an appeal against a judgment passed by a court of first instance, the parties shall be notified of a chamber session if the chamber’s president or the chamber itself deems that the presence of the parties would help clarify matters. 

Upon ruling, the court of the second instance may:

• Dismiss the appeal as untimely, inadmissible, or untidy.
• Reject the appeal as unfounded and uphold the first-instance judgment.
• Grant the appeal, set aside the first-instance judgment, and refer the case back to the court of first instance for re-trial.
• Grant the appeal and reverse the first-instance judgment. 

Furthermore, a court of the second instance may reverse a decision by a court of first instance if it finds that the court of first instance has misjudged identity papers or evidence it has not presented itself and that its decision is based on that evidence.

The second instance court shall issue its judgment if, in the same case, a first-instance judgment has already been abolished. 

Extraordinary legal remedies – a handy tool for contesting final judgments in commercial offense proceedings 

Once the judgment attains the status of legal finality, it can only be contested through extraordinary legal remedies, namely the reopening of proceedings and a motion for the protection of legality. 

Reopening of proceedings 

Given that the submission of a request for the protection of legality falls exclusively within the jurisdiction of the public prosecutor (details of which will be discussed later), in practical terms, requests for the repetition of proceedings are more prevalent. Therefore, we will dedicate this extraordinary legal remedy to a few additional lines.

The proceedings ended by a final judgment or a final ruling on a commercial offense rendered in summary proceedings may be reopened. 

The reasons for the proceedings reopening are stipulated under the provisions of both Procedure Code and Law. Proceedings concluded with a final judgment may be reopened only to the benefit of the defendant even if, in addition to the cases provided for by Procedure Code, the proceedings may also be reopened if it is established that the responsible person convicted of an economic offense has been validly convicted of the same act in criminal proceedings.

A request to reopen criminal proceedings must specify the reason for such request and the evidence substantiating the facts on which the request is founded. If the request does not contain these data, the court shall instruct the applicant to amend the request with a written submission within a certain time limit.

In terms of competence, the panel of the court of the first instance shall decide on a request to reopen the proceedings. In deciding on the request, a judge who took part in rendering the judgment in the earlier proceedings, shall not be a member of the panel. If the court learns of the existence of a reason to reopen criminal proceedings, it shall notify thereof the defendant, or the person authorized to submit a request on behalf of the defendant.

Court’s actions upon the filed request for reopening the proceedings

The court shall dismiss a request to reopen criminal proceedings in the event it has procedural flaws stipulated under the provisions of the Procedure code.

If the court does not dismiss a request to reopen proceedings, it shall deliver a copy of the request to the opposing party, which is entitled to respond to the request within eight days. Once the court receives the response to the request, or when the time limit for a response expires, the president of the panel may order an examination of the facts and acquisition of the evidence cited in the request and the response to the request. 

The court may reject or grant the request by allowing the reopening of the proceedings. In a decision granting the request and allowing proceedings to be reopened, the court shall order the new main hearing. Last but not least, it should be noted that in the new proceedings, conducted based on a decision allowing a reopening of criminal proceedings, the court is not bound by any decision issued in the criminal proceedings conducted earlier. 

Motion for the protection of legality

Following the provisions of Law, the competent Public Prosecutor may file a motion for the protection of legality against a final court decision violating Law or regulation on an economic offense, as well as against the court proceedings held before the final court decision. 

The quoted provision of Law has sparked a lot of debate in judicial practice, considering that it regulates the circle of individuals authorized to submit this extraordinary legal remedy differently from the Procedure Act. As a reminder, the Procedure Act, whose corresponding application in the commercial offense proceeding is introduced by Law, stipulates that requests for the protection of legality can be submitted by the Republic Public Prosecutor, the accused, and the defense counsel.

Having in mind that the circle of individuals authorized to submit requests for the protection of legality is determined by the provisions of the law, in this specific case, there is no corresponding application of the Procedure Act’s provisions. Therefore, the competent public prosecutor is exclusively competent to submit this extraordinary legal remedy. Such a standpoint has been represented both in the judicial practice of first-instance Commercial Courts and in the practice of the Commercial Appellate Court and the Supreme Court of the Republic of Serbia.

We will highlight the Decision of the Supreme Court of Cassation of the Republic of Serbia (now the Supreme Court of the Republic of Serbia) no. Kzz P 10/2022  from August 20, 2022, states the following: “…from the cited regulations, it follows that, about the applicable general provisions of the criminal procedure, the Law on Commercial Offenses, which applies in proceedings for commercial offenses, determines a different circle of persons authorized to submit requests for the protection of legality. Therefore, in proceedings for commercial offenses, there will not be a corresponding application of the provision of Article 483, paragraph 1, of the Criminal Procedure Code in connection with Article 56 of the Law on Commercial Offenses. Instead, concerning the authorization to submit requests for the protection of legality, the provision of Article 130 of the Law on Commercial Offenses is applied.”

Top of Form

As far as grounds for filing the request are concerned, the authorized subject can submit it if, by a final decision or decision in the procedure that preceded its issuance:

• a law was violated.
• A law was applied, which, according to a decision by the Constitutional Court, was found not to comply with the Constitution, universally accepted principles of international law, and ratified international agreements.”
• A human right or freedom of a defendant or other participant in proceedings guaranteed by the Constitution and the European Convention for the Protection of Human Rights and Fundamental Freedoms and its Additional Protocols was violated or denied, as determined by a decision of the Constitutional Court or the European Court of Human Rights.

For sake of the clarification, a violation of law within the meaning of the above-quoted provision exists if a provision of a procedure law was violated by a final decision or in the procedure that preceded its issuance, or if the law was applied incorrectly to the finding of fact determined in the final decision.

A request for the protection of legality for the reasons set forth in points 2 and 3, may be submitted within three months of the date when the person was served the decision of the Constitutional Court or the European Court of Human Rights. 

A defendant may submit a request for the protection of legality in connection with violations of the Procedure Code (specific violations prescribed by the provisions of the Law) committed during the first-instance proceedings and the proceedings before the appellate court, within 30 days from the day of the delivery of the final decision, provided that he/she has used an ordinary legal remedy against that decision.

Supreme Court of the Republic of Serbia is competent to decide upon the request and it can either dismiss the request for procedural reasons, reject the request, or grant the request.

By granting the request, the Supreme Court can:

• abolish the first-instance decision and a decision issued in ordinary legal remedy proceedings, or only the decision issued in ordinary legal remedy proceedings in full or in part, and send the case for new proceedings, where it may order those new proceedings be held before a completely changed panel;
• reverse in full or in part the first-instance decision and the decision issued in ordinary legal remedy proceedings or only the decision issued in ordinary legal remedy proceedings;
• limit itself to establishing a violation of the law.

3 special proceedings governed by Law

• Proceedings for the Confiscation of Proceeds

If the accused legal entity ceased to exist before or after the institution of proceedings, at the Public Prosecutor’s request, the proceedings shall be conducted against the legal entity succeeding the legal entity that ceased to exist but only concerning the confiscation of the proceeds obtained by the commission of a commercial offense.

The proceeds may only be confiscated in an amount equaling the value of the assets taken over from the accused.

• Proceedings for the Indemnification for Unjustifiable Conviction

The general rule stipulated under the law is that a legal entity or the responsible person unjustifiably convicted in commercial offenses proceedings shall be entitled to indemnification.

The law does not offer any complex regulation regarding this matter, but it prescribes the corresponding application of Procedure’s Code provisions.

As was the case earlier in the text, we will cover this matter in more detail considering that it arises a lot more often in practice.

Defining an unjustifiably convicted person is of crucial importance for clients to understand their rights in case such a scenario happens to them. It is an entity declared guilty and subjected to a sanction by a final decision, or initially convicted but later granted a remission of penalty if, upon seeking an extraordinary legal remedy, new proceedings result in a final decision, charges are rejected conclusively, or the case concludes with a final acquittal.

The aforementioned entity will not be entitled to damage compensation if:

1. The conviction was deliberately caused through a false confession or other means unless coerced.
2. Proceedings were terminated or charges were rejected due to the subsidiary prosecutor, private prosecutor waiving prosecution, or the injured party abandoning their motion, and such abandonment resulted from an agreement with the defendant.

In cases involving a conviction for concurrent criminal offenses, the right to seek damage compensation may also extend to individual criminal offenses meeting the necessary criteria.

When it comes to the proceeding for exercising the right in question, it’s of critical importance to understand that, before an unjustifiably convicted person files a lawsuit against the Republic of Serbia for compensation of damages, it must submit the request to the ministry in charge of judicial affairs to settle on the existence of damage and the type and amount of compensation.

If such a claim is not accepted or the Ministry’s commission does not rule on the claim within three months of the date when it was submitted, an unjustifiably convicted person may file with the competent court damage compensation lawsuit.

• Proceedings for the Expungement of Conviction and Termination of Security Measures or Legal Consequences of Conviction

The court of first instance, entrusted with maintaining pertinent records shall render a decision concerning the expungement of a conviction or a suspended sentence upon the application of the convicted party.

Prior to pronouncing a judgment on the expungement of a conviction, requisite examinations shall be undertaken. This involves the meticulous collection of data to ascertain whether the accused individual is facing trial for another commercial offense committed before the expiration of the stipulated timeframe for expunging the conviction. The expunged conviction shall not be incorporated into any certificate issued based on the official records.

The convicted party is obligated to submit a formal petition to the court of first instance, the same court that imposed the security measure or conviction resulting in legal consequences, seeking the termination of said security measure or legal consequence impacting the execution of specific duties.

Upon completing the essential inquiries into the relevant circumstances, the aforementioned court will render a decision within a judicial panel comprised of three judges.

Both the petitioner and the Public Prosecutor, acting on behalf of the court of first instance, retain the right to appeal the decision of said court to a court of second instance.

In the event that a petition is dismissed, the filing of a subsequent petition is permissible only after the lapse of two years following the finality of the ruling that rejected the preceding petition.

The trilogy finale

Navigating through commercial offense proceedings represented a detailed legal journey and as our trilogy concludes, we hope to have effectively communicated this nuance of penal law in the Republic of Serbia, bringing our readers closer to this vital subject. Our commitment to providing insightful and comprehensive legal support and content remains steadfast, and we trust that this trilogy serves as a valuable resource for our readers and clients alike. 

Considering that this segment of Serbian penal legislation undoubtedly needs a touch of modernization and will continue to evolve, we pledge to keep our current and future clients informed and engaged, offering clarity on emerging legislation, procedural changes, and significant judicial decisions. Our goal to provide a valuable resource extends beyond this trilogy, and we encourage our readers and clients to reach out to our team with any legal inquiries.

By Milovan Bogdanovic, Senior Associate, JPM & Partners

On February 8, 2024, the European Commission (“EC”) unveiled an updated Market Definition Notice (“the Notice”). The revision plays a crucial role in the EC’s approach to assessing mergers and antitrust cases by delineating the competitive boundaries and assessing the market power of companies.

The Notice extends beyond EU Member States, mandating compliance from Western Balkan countries (“WBs“) aligned with the EU competition law acquis.   Namely, all WBs, through the Stabilization and Association Agreements, have committed to enforce the criteria derived from the implementation of competition rules applicable in the EU, in particular from famous Articles 101, 102, 106 and 107 of the Treaty on the Functioning of the European Union.

The Notice guides legal and business practices within the EU.  It significantly influences the competition law landscape in the WBc, necessitating vigilant compliance and strategic adaptation from companies operating in these regions.  In other words, all novelties introduced by the Notice and elaborated below will directly apply in WBs.

Main Novelties

The Notice retains the core methodology of its 1997 predecessor but updates it to reflect current market realities and advancements in EC practices and EU jurisprudence.  Highlights of the Notice include:

1. Principles of Market Definition

The Notice explains that companies are subject to three main sources of competitive constraints: (i) demand substitution, (ii) supply substitution, and (iii) potential competition.  The EC defines the relevant product market by evaluating how interchangeable products are from a consumer’s standpoint, a process referred to as demand substitution.  Also, it clarifies that supply substitution becomes pertinent in defining the product market when suppliers utilize identical assets and processes to manufacture related products, which aren’t customer substitutes, and when this results in comparable competitive conditions across these related products.

2. Enhanced Focus on Non-Price Competition Factors in multi-sided platform cases

The Notice broadens its focus to include innovation, supply reliability, and the quality of products/services.  Namely, in cases that concern multi-sided platforms, the EC focuses on non-price parameters such as (i) product functionalities, (ii) intended use, (iii) evidence of past or hypothetical substitution, (iv) barriers or costs of switching, such as interoperability with other products, data portability, and licensing features. In addition, the EC could also apply the ‘SSNDQ test,’ which, as noted above, assesses the switching behavior of customers in response to a small but significant non-transitory decrease in quality.

3. Forward-Looking Approach in Innovation-Driven Markets

The Notice guides forward-looking approaches for defining markets amidst technological or regulatory shifts; in cases requiring a forward-looking analysis, especially when defining markets based on future shifts in competitive dynamics, any anticipated changes must be substantiated by credible evidence, showing a high likelihood of their actual occurrence.  However, during such assessments, certain types of evidence might be less reliable or not available at all.  For instance, historical substitution data might not exist for new, still-developing products.  On the other hand, routine internal documents from companies or independent industry reports with solid forecasts can be particularly valuable in conducting a forward-looking assessment.

4. Market definition in after-markets, bundles, and digital ecosystems:

After-markets are sectors in which using a durable, primary product leads to using a related, secondary product.  The Notice outlines three methods EC might use to define relevant product markets in these scenarios: (i) as a system market, encompassing both the primary and secondary products; (ii) as multiple markets, one for the primary product and separate ones for the secondary products tied to each brand of the primary product; and (iii) as dual markets, with distinct markets for the primary and secondary products.

The Notice also applies these principles to digital ecosystems, which may consist of a primary digital product and several secondary digital products linked through technology or interoperability.  The EC might treat bundled secondary digital products as a separate market in such cases.  Additionally, the EC considers other factors like (i) network effects, (ii) switching costs, and (iii) customer choices between single or multiple service usage in defining the relevant market, acknowledging that not all digital ecosystems conform to the after-market or bundle models.

5. Geographic Market Definition

The EC defines the relevant geographic market by assessing whether conditions of competition are sufficiently homogeneous for the effects of the conduct or concentration to be assessed.  Notably, the EC recognizes that markets can range from local to global, depending on the case facts.  When customers worldwide have access to the same suppliers on similar terms, regardless of the customers’ location, the relevant market is likely to be global.  Relevant factors for defining geographic markets are (i) market shares, (ii) prices, (iii) customer preferences, (iv) purchasing behavior, (v) switching costs and other barriers to supplying customers in different areas, (vi) transport costs and (vii) trade flows.

6. Quantitative Techniques

The Notice clarifies using analytical methods like the SSNIP test for defining markets.  Namely, the EC stresses that in some cases, to identify the boundaries of the relevant market, it would be necessary to assess quantitatively whether an SSNIP (small but significant non-transitory increase in price) would be profitable for a hypothetical monopolist.

7. Evidence Sources and Value:

The Notice advises on the types of evidence and their importance, drawing from the EC’s extensive experience.  Specifically, EC uses various sources of information and types of evidence to define the relevant market.  Certain types of evidence may be decisive in one case but of limited or no importance in other cases involving a different industry, product, or circumstances.  An open approach to empirical evidence is applied by the EC to effectively use all available information that may be relevant and make an overall assessment based on that evidence. On the other hand, the EC does not apply a rigid hierarchy of different sources of information or types of evidence.

Impact on Western Balkan Countries

Given that National Competition Authorities (“NCAs”) in the WBs have already referred to EC practice and the EU court’s jurisprudence in their decisions on merger control review or antitrust infringements, the Notice will undoubtedly significantly impact their further enforcement.  In that vein, we highlight certain specificities of the Notice that are directly relevant to the NCAs.

1. Resale price maintenance

The EC underscores the necessity of defining the relevant market as a mandatory step in all investigations related to abuse of dominant position, merger review, and specific restrictive agreements.  However, market-sharing cartels deem market definitions unnecessary, as these are considered per se infringements.  Notably, the Notice sidesteps the issue of vertical agreements with resale price maintenance provisions (“RPM”), possibly reflecting a nuanced stance post the Super Bock EU Court of Justice case.

The NCAs in the WBs, especially in Serbia, particularly regarding whether they (i) treat that infringement by object, (ii) do not define the relevant market, and (iii) do determine and assess negative market impact, may need reassessment in light of this stance.  Considering the EU Court of Justice’s stance in the Super Bock case, it appears the EC does not automatically categorize RPM as a per se infringement, signaling a potential shift in enforcement priorities that NCAs may need to mirror.

2. Gathering and evaluating evidence

Furthermore, it is crucial to emphasize that the EC’s method of gathering and evaluating evidence unequivocally indicates that all companies, including those in the WBc, must comply with competition law rules.  Specifically, the EC highlights that evidence carries a higher probative value if it can be established that the evidence could not have been influenced by its investigation, such as evidence pre-dating discussions of a concentration or conduct and pre-dating EC’s investigation.

This implies that when companies in WBc are preparing business strategies for concentrations or during contract negotiations with other firms, they should consider that the documentation prepared in the ordinary course of business will be of greater significance to the NCAs compared to the documentation submitted in the course of proceedings before the NCAs.  Given this assessment of evidence by the EC, it becomes critically important for companies WBc to thoroughly document evidence and strategic considerations related to their business strategies and negotiations, particularly when finalizing acquisitions or agreements.

Moreover, the EC’s methodology for evidence gathering and evaluation underscores the imperative for companies in WBc to adhere to competition laws.  Emphasis is placed on the probative value of evidence unaffected by the EC’s investigations, suggesting that documentation generated in regular business activities holds greater significance for NCAs than that produced expressly for legal proceedings.  For instance, in Marriott International/Starwood Hotels & Resorts Worldwide, the EC relied on the fact that the merging parties benchmarked themselves against chain and independent hotels to find that these suppliers were in the same market.

Conclusion

The Notice is a crucial reference for legal and business operations within the EU and profoundly influences the competition law framework in the WBs.  Companies active in these areas must commit to diligent compliance and strategic planning to adeptly manage the changing legal environment.  This requires them to establish comprehensive compliance programs to successfully deal with the complexities of the broad EU competition law regulatory framework.

By Vuk Lekovic, Senior Associate, Gecic Law

Under the Serbian Law on Foreign Exchange Operations and its accompanying bylaws, Serbian residents have various reporting obligations towards the National Bank of Serbia (“NBS”), which is competent for controlling foreign exchange (“FX”) operations of residents and non-residents. It is not rare in practice that companies operating in Serbia are not aware of (all) such obligations, especially in the cases of first-time entrance to the market, which exposes them to potential liability for FX misdemeanours. The controls in this area are common while identified irregularities are followed by misdemeanour proceedings.

While various reporting obligations exist for different types of residents, in our experience mistakes are most common in the cases of local companies and branches of foreign companies registered in Serbia (which are considered as residents from FX perspective) in reporting on (i) direct investments of non-residents in Serbia, (ii) financial loans with abroad, and (iii) payment codes in transactions with abroad. For this reason, these residents and obligations are in focus here.

Every local company which has a non-resident as its direct shareholder, as well as every branch of a foreign company, is obliged to report on foreign direct investments of non-residents in Serbia to the NBS. The reporting is done electronically on DI-1 reporting forms, for every calendar quarter. Reporting deadlines are 10 April for Q1, 10 July for Q2, 10 October for Q3 and 10 January for Q4. Reporting is usually handled by an in-house finance team or an external accountant if engaged for such activities.

Whenever a Serbian company or (in limited permitted cases) a branch of a foreign company enters into a financial loan with a non-resident, it is obliged to report to the NBS on such financial loan, including among others on entering into the loan agreement, planned and realized utilizations and repayments, amendments to and termination of the loan agreement, intended loan purposes, etc. Similar reporting rules apply to inbound and outbound loans, while in practice inbound loans to Serbian resident borrowers are much more present. The reporting is done on KZ reporting forms through the commercial bank of the resident (borrower or lender), and the deadline is 10 days as of the signing of the loan agreement or other relevant change. Typically, KZ forms need to be signed by the resident, which places the process relatively in its control and makes it able to monitor compliance with the deadlines. However, in practice specifically interesting is the KZ-3B form, which is used for reporting on each utilization and repayment of the loan. This form is submitted electronically by the commercial bank of the resident, often without the resident even being aware of this. Nevertheless, if the deadline for the submission of this form is not met, the liability still lies with the resident (borrower or lender) and not with its bank. The delays occur in practice for various reasons, which is why it is prudent to confirm with the bank after every utilization or repayment of the loan that the KZ-3B form has been duly submitted to the NBS.

In addition, every payment transaction to or from abroad needs to be booked by a local resident under one of the payment codes prescribed by the NBS. When making or receiving a payment, the resident provides its bank with the payment code and is liable for choosing the appropriate one. This is relevant to note as there is often a misunderstanding in practice where residents expect the bank to direct them to the payment code to be used. Generally, attention should be paid when choosing the code as it is not always entirely obvious which category applies. For example, there are different codes for direct investments and for paying-in of foreign capital of the founder which does not increase the share capital, or codes for interest on short-term loans and for interest on long-term loans, etc. In cases when there is no directly applicable payment code, the approach supported by the NBS in practice is to use the closest available code, provided that it is clear that the transaction is allowed under FX rules. In cases of doubt, it is advisable to check the matter with the legal advisors or the NBS, as irregularities in executing payments with abroad are sanctioned.

Breaches of the above rules constitute FX misdemeanours punishable by monetary fines of up to approx. EUR 17,000 for the company or the branch of a foreign company, and by up to approx. EUR 1,250 for the responsible person. In case of multiple misdemeanours adjudicated in the same court proceedings, the penalties are limited to double of the above, up to approx. EUR 34,000 i.e. EUR 2,500. In our experience the actual penalties imposed by the court did not come close to the maximum ones, however, the mere occurrence of the proceedings mandates the allocation of certain administrative and financial resources. Also, established misdemeanour liability is recorded in the official misdemeanours records, which is particularly relevant for the directors and other responsible officers as it may be considered for their future functions.

In view of all above stated, the companies operating in Serbia should take care to get aware of the applicable reporting obligations in time, advisably even before the start of the local operations, and to implement the procedures to duly fulfil the abovementioned and all other reporting obligations in accordance with the law. While the reporting is relatively simple once implemented, the consequences of incompliances may be less so. 

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Maja Jovancevic Setka, Partner, and Dimitrije Ilic, Associate, Karanovic & Partners

BDK Advokati has successfully represented Satko Mujagic, Fikret Alic, and the Association of Camp Inmates Kozarac in a dispute against the Serbian REM electronic media regulator before the Administrative Court in Belgrade.

The dispute arose following events in March 2021, when, according to the firm, “plaintiffs Satko Mujagic, Fikret Alic, and the Association of Camp Inmates Kozarac complained to REM regarding statements made in Happy TV’s morning show ‘Good morning, Serbia’ on February 22, 2021. In the program, the host Milomir Maric and his guest, movie director Predrag Antonijevic, stated that the camps in the Prijedor area (in Bosnia and Herzegovina, controlled by the Bosnian Serb army during the 1992-1995 war) were ‘open’ and served for people to seek shelter in them, and that reporting on the camps was part of ‘world-wide propaganda’ against Serbs.”

According to BDK Advokati, “on May 10, 2021, REM discontinued the proceedings against Happy TV, initiated two months earlier by former prisoners of the concentration camps Omarska, Keraterm, and Trnopolje […] REM stated that it was unable to reach a majority of votes either in favor or against Happy TV.”

“The judgment of the Administrative Court, dated October 27, 2023, but delivered to the parties in February 2024, is notable because it establishes that REM was not permitted to discontinue the proceedings on the ground that it could not reach a majority of votes,” the firm reported. “In addition, the Court found that by preventing the plaintiffs from actively participating in the proceedings, REM breached a series of fundamental principles of administrative proceedings: legality and foreseeability of the proceedings, protection of public interest and the interest of third parties, effectiveness of the proceedings, truthful determination of facts, and protection of the right of the parties to be heard.”

The BDK Advokati team included Senior Partner Bogdan Ivanisevic and Senior Associate Relja Radovic.

Amendments to laws and other regulations must stipulate transitional and final provisions. They regulate, among other things, the date of entry into force of the act, which is, as a rule, eight days starting from the day of its publication in the “Official Gazette of the Republic of Serbia”, while in certain cases later implementation of the act or its certain provisions is foreseen.

By the aforementioned practice, the legislator actually made a difference between the date of entry into force of the regulation and the commencement of its application.

The justification for this action of the legislator is found in the need to carry out preparatory actions in order to smoothly implement the regulations. For the stated reason, as a rule, in the period between the entry into force of the law and the beginning of its application, by-laws are adopted.

Such is the example of the adoption of the Law on Dual Education, which entered into force on November 18, 2017, and the application of which was foreseen starting from September 1, 2019. The transitional and final provisions of the law in question stipulate for the following:

• “By-laws for the implementation of this law shall be adopted by the minister within six months starting from the date of entry into force of this law.

Acts referred to in Article 12, paragraph 13, and Article 30, paragraph 11 of this law shall be adopted by the Chamber of Commerce of Serbia within three months starting from the date of entry into force of this law.

Until the start of the application of the law regulating the national framework of qualifications, the qualification standard in dual education is determined in accordance with the law regulating the basics of the education and upbringing system, except for the part related to the job description determined by the Serbian Chamber of Commerce.”

• “This law enters into force on the eighth day starting from the day of its publication in the “Official Gazette of the Republic of Serbia”, and it applies from the school year 2019/2020. years.” 

After the entry into force of the Law on Dual Education and prior to the commencement of its implementation, the following by-laws were adopted:

• Rulebook on the training program, closer conditions, and other matters of importance for taking the instructor exam as of September 29, 2018. years;
• Rulebook on the method of assigning students for learning through work as of December 29, 2018;
• Rulebook on the conditions, working methods, activities, and composition of the team for career guidance and counseling in a high school that implements educational profiles in dual education as of January 24, 2019;
• Rulebook on the organization, composition, and method of work of the commission for determining the fulfilment of the conditions for performing learning through work at the employer as of June 23, 2018. (ceased to be valid on September 25, 2019).

Therefore, all the above-mentioned by-laws were adopted after the entry into force of the Law on Dual Education, and before the start of its application.

When adopting, as well as amending general acts, employers in practice often act as the legislator himself.

However, according to the opinion of the Supreme Court of Cassation, what the legislator can do, the employer cannot do!

One of the cases from our past practice confirmed the above.

Namely, the employer rendered amendments to the Rulebook on the organization and systematization of jobs by which he canceled certain jobs and stated that the amendments enter into force within eight days from the date of publication of the act on the notice board and that they shall be applied two months after the entry into force (e.g. starting from April 1, 2023). After the amendment entered into force, and prior to the commencement of implementation, the employer submitted a resolution on termination of the employment agreement to the employee who was the sole executor of the jobs that were canceled, while the resolution in question stipulated that the employment relation ends on April 1, 2023. year, i.e. on the date of the start of application of the amendments to the Rulebook on organization and systematization of jobs.

The Court of Appeal found that the resolution in question was unlawful due to the fact that it was rendered based on a non-existent act. The court’s understanding is that the resolution on termination of the employment agreement could not have been rendered before the amendments of the Rulebook on the organization and systematization of jobs began to be implemented.

The Supreme Court of Cassation took the same stand and elaborated that the Constitution of the Republic of Serbia does not stipulate a distinction between the date of entry into force of a general act and the moment of its application. Therefore, the period starting from the “date of entry into force” to the “date of application of the law” should be considered as vacatio legis, and during the said period the regulation does not actually exist.

Although the practice applied by the legislator in this regard was pointed out to the court by the revision (example of the Law on Dual Education and by-laws), the court’s explanation was as follows:

“Legislator, i.e. the one rendering a general act, is unfortunately more and more likely to approach this practice, in a situation where it takes a certain amount of time to prepare the implementation of that law, whether financially, technically, or in some other sense.”

“All the facts from the revisions that indicate the phenomenon in practice that the moment of entry into force of the general act and the moment of its application do not coincide, what is completely correct, do not lead to a different conclusion because that difference was established in the aforementioned goal – preparation for the implementation of the general act so that in that period, as already stated earlier, the general act practically does not have a legal effect, so, in essence, the legislator, i.e. the one rendering a general act, when he foresees the delayed effect of the law, therefore prescribed that this act does not legally exist during that time. “

If the stand of the Appellate Court, as well as the Supreme Court of Cassation, were to be accepted, it would mean that not only individual, but also any general by-laws that were adopted in the period between the date of entry into force of the law and the expected date of application of the law, do not exist, and that natural persons and legal entities are not obliged to act according to them, i.e. to respect them – which is not the case in practice.

From the aforementioned example, we can conclude that the consequences of acting by analogy with the actions of legislators, currently valid judicial practice, as well as the opinions of competent authorities can have serious negative consequences for business.

This is of particular importance, bearing in mind that in labour law disputes, courts practically do not use the possibility of acting in accordance with Article 191, paragraph 7 of the Labor Law, which prescribes “if the court determines during the procedure that there was a reason for the termination of the employment relation, but that the employer acted contrary to the provisions of the law that prescribes the procedure for termination of employment, the court will reject the employee’s request for reinstatement, and will award the employee an amount up to six times the employee’s salary as compensation.”

Therefore, the essence is important, but the form is obviously more important.

By Jelena Nikolic, Partner, JPM & Partners, JPM & Partners

Effective enforcement of competition rules in the AI world is on the horizon. Competition regulators around the world are closely monitoring the advancement of AI and the competitive landscape across various facets of AI.

The European Union has invested significant efforts in regulating AI and creating the landmark EU AI Act. The relevant institutions have successfully reached a political agreement on this pivotal legislation in early December 2023. In particular, the European Commission (“EC”) proposed the AI Act back in 2021 and on 9 December 2023, the European Parliament provisionally agreed with the Council on the AI Act. On 2 February 2024, the EU AI Act was unanimously approved by the Council. The next steps in the process involve the European Parliament’s approval, with two parliamentary committees set to vote on February 13. The full European Parliament plenary vote, the last step before the EU AI Act becomes EU law, is anticipated in April.

The new year of 2024 began with the EC launching two calls for contributions on competition in virtual worlds and generative AI and sending requests for information to the largest digital players. In addition, the EC has taken steps in market investigations, announcing a review of agreements between major digital market players and generative AI developers/providers. The focus of the investigation is on understanding the impact of these partnerships on market dynamics. Finally, the EC is assessing whether Microsoft’s investment in OpenAI is subject to review under the EU Merger Regulation.

In the UK, the Competition and Market Authority (“CMA“) released a report outlining guiding principles for the future utilization of artificial intelligence models. These seven principles address concerns about market monopolization and anti-competitive behaviour, targeting foundational models like ChatGPT. While not legally binding laws, these principles could potentially guide the CMA in any actions it takes. The CMA plans to engage with stakeholders and publish another report in early 2024.

Similarly, the US Federal Trade Commission (“FTC”) held the FTC Tech Summit on 25 January 2024 with a goal to initiate conversation across academia, industry, civil society organizations, and government agencies on AI across the layers of the technology issues—from microchips and cloud infrastructure to data and models to consumer applications. Also, to gather the relevant information, the FTC made steps in tackling AI-related competition concerns by issuing orders to five companies requiring them to provide data on recent investments and partnerships involving generative AI companies and major cloud service providers. The aim is to analyse the effects on competition for AI inputs and resources and in particular whether the strongest market participants are in any way abusing this position and distorting competition.

Maintaining effective competition in the AI world seems to be a priority to some of the largest competition watchdogs and the rest of the regulators will undoubtedly follow.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Bojana Miljanovic Hussey, Partner, and Nikola Kliska, Senior Associate, Karanovic & Partners

NKO Partners has advised the Dr. Max pharmacy chain on its acquisition of the Pet-Sar Farm pharmacy chain in Serbia from Natasa Stanojkovic.

According to the firm, Pet-Sar Farm is based in southern Serbia and includes numerous retail units.

NKO has recently advised Dr. Max on its acquisitions of the Melem Pharmacy (as reported by CEE Legal Matters on December 1, 2023), the Dr. Ristic Pharmacy Chain (as reported on November 9, 2023), the Uniprom pharmacy chain in Zajecar (as reported on October 4, 2023), Nova Pharm (as reported on March 28, 2023), Beolek (as reported on March 9, 2023), Cvejic (as reported on January 31, 2023), as well as AU Medis Lek (as reported by CEE Legal Matters on January 6, 2023).

The firm had also advised the Dr. Max Group on its acquisition of several other pharmacy chains in Serbia in 2022, including Pancevo-based AU Kod Suncanog Sata and Veliko Gradiste-based AU Selic (as reported on October 11, 2022), Belgrade-based K-Pharma (as reported on June 8, 2022), the Janja pharmacy chain (as reported on March 28, 2022), and the Zlatni Lav pharmacies (as reported on January 5, 2022).

The NKO team included Partners Djordje Nikolic and Branko Jankovic and Associate Goran Mihajlovic.